Foreigners gang up on the dollar… Ben’s bitter irony… A chartist’s view on the buck… Why the Fed’s “quantitative easing” is a game changer… Investing in the “poor man’s gold”… And more!..

[Your Notes
editor will be spending the day in battling Argentine bureaucracy.
(It’s a long story. But basically I am trying to get residency down here.)
So, today I’ll be leaving you in the capable hands of Crisis Strategy Alert
senior analyst Charles Delvalle.]

*** Is this the end of the buck?

Next week a UN panel will recommend that the world drop the US dollar as the reserve currency and instead use a shared basket of currencies.

This from Reuters:

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

And guess what’s going to be announced at the next G20 meeting in April? Our vodka-loving comrades in the east will also propose the creation of a new reserve currency.

*** It’s a bitter irony that Ben Bernanke, who’s supposed to be in charge of protecting the value of the dollar, threw the buck under a bus yesterday when he announced the Fed would embark on a Japanese-style quantitative easing program. Bernanke said the Fed would buy-back U.S. government and agency debt – effectively flooding the U.S. economy with 1,000,000,000,000 freshly printed dollars.

*** the UN and Russia’s response to America’s privileged status was expected.

The dollar’s world reserve status is a big reason why we’re in the economic mess we’re all in right now. If the dollar wasn’t the world’s reserve currency, the U.S. wouldn’t have been able to run-up one of the biggest gluts of public and private debt ever seen in history. Any “normal” currency would have buckled under the weight of this debt mountain.

*** The dollar is trading steady today. But this is only after its worst weekly drop in 24 years.

I rely on charts to trade. Not exclusively. But I do think that chart work is the best way to indentify profitable trends.

On the charts, the U.S. dollar index hit some technical resistance (a price it doesn’t want to move above) just under 90 cents.

As you can see above, not only did the buck fail to pass that resistance but now news is driving it lower.

The dollar’s fundamentals are weak thanks to the Fed’s quantitative easing and near-zero interest rates policy. The point is so are the fundamentals of so many other major world currencies.

“Competitive devaluation” is the name of the game. Sweden, the U.S., Britain and others have devalued their currencies. The question is who will devalue the most.

If it’s the buck (with Ben printing cash like it’s going out of style it’s pretty likely), then the dollar bull run is over. But we don’t know the answer to that yet – and probably won’t for some time.

*** Your Notes co-editor, Chris Hunter, reckons Ben Bernanke’s recent decision to embark on a Japanese-style quantitative easing program is a “game changer.”

The term quantitative easing is simply the Fed’s way of saying “printing money” – although for obvious reasons, it doesn’t want to put it that way.

Bernanke said that Fed will buy $1 trillion in long-term U.S. government and agency bonds. In effect, that means it’s going to print up $1 trillion and use this money to buy the bonds. Is this inflationary? Hell, yes!

The whole point of buying long-term bonds is to have an inflationary effect. (Buying short-term debt, which is what the Fed normally does when it wants to expand the money supply, has no traction when rates are down to near zero.)

The problem is that if the economy recovers, the Fed will then have to try to soak up the excess money it’s created by selling these Treasuries back into the market.

But inflation isn’t just about money supply, it’s also about expectations. If the market expects higher prices, then it becomes self-fulfilling. And once the inflation genie is let out of the bottle, it is mighty difficult to put back in.

Just ask Paul Volcker. The former head of the Federal Reserve had to trigger a recession, during President Carter’s term (by jamming up interest rates), to kill off inflation.

But that’s assuming the economy will recover. In the case of the Japanese, who invented quantitative easing, they got the worst of both worlds: inflation plus a continuing recession.

Chris believes the Fed’s meddling, over the long term, will badly hurt the dollar and be bullish for gold, oil and other commodities.

*** Chris is right. Inflation always
leads to higher prices. And that means higher commodities
prices.

Last Tuesday,
I told Notes

readers that oil was setting up for a break out. It looks like the breakout has finally occurred (although admittedly prices haven’t really started to move yet). That means we should see oil prices pushing higher from here.

*** Oil is not the only good call I’ve made lately, either.

On Friday, James Dale Davidson and I warned readers of our crisis investing advisory, Crisis Strategy Alert,

of an upcoming “sucker’s rally” in U.S. stocks.

We told readers to close out of their short position on the Dow, picking up gains of 24%. Then on Monday morning, we told readers to buy into a leveraged financial fund. Two days later, they locked-in gains of 39%. This string of winners could’ve made you cumulative gains of 64%.

*** As you may or may not know, I also write a daily column on ContrarianProfits.com called Chart of the Day.

Today I looked over my past recommendations to see how I did.

• On March 5
  I told readers to go long Altria. Since then, this stock is up 5.6%.
• On March 4
  I told readers that Microsoft had been beaten down too hard and was ready for a rebound. Since then, Microsoft has rallied 9.6%.
• On March 3
  I told readers to go long Amazon. Since then, Amazon has rallied 12.6%
• On Feb 26
  I said to short commercial real estate developer Kimco Realty (NYSE:KIM).
  KIM has since dropped 21%.
• On Feb 23
  , I noticed that Yahoo! Inc. (NASDAQ:YHOO)
  was looking far better after the removal of the dumbest CEO in history, Jerry Yang. Yahoo! sas since rallied 13%.

Check out my Chart of the Day column
on ContrarianProfits.com.

*** If you’re interested in playing the coming inflation, Penny Sleuth’s Jim Nelson says the best way to do this is to
invest in silver.

One reason Jim prefers silver to gold is that the gold/silver ratio is out of whack right now. Historically, gold trades for 16 times silvers value. Today, gold is trading at 71 times silver’s value.

Stay Free,

Charles Delvalle

Senior Analyst,
Crisis Strategy Alert

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